Budget 2014 predictions: Australia's overseas aid

Australian Treasurer Joe Hockey is set to hand down Australia's federal budget. What will this mean for Australia's overseas aid?

Will Australia's foreign aid spending be capped and what will happen to the decades-old practice of measuring aid as percentage of gross national income?

Overseas aid

Australia's overseas aid program aims to assist people in crisis and help developing countries reduce poverty and achieve sustainable development.

The aid program is an integral part of Australia's foreign policy and security agenda.

The Australian Government has a focus on the Indo-Pacific region and has declared foreign aid an instrument of "economic diplomacy."

The World Bank says 1.21 billion people globally live in extreme poverty and about two-thirds, approximately 757 million, live in the Asia-Pacific region.

It says 2.39 billion people globally live on less than 2 dollars a day. 1.7 billion people live in the Asia-Pacific region

Australia has international obligations under the Millennium Development Goals to spend 0.7 per cent of its Gross National Income on effective foreign aid by 2020.

There is bipartisan support to lift aid levels to 0.5 per cent of Gross National Income, but both Labor and the Coalition Governments have saved billions of dollars by delaying the financial year when this is expected to be spent. It is currently delayed to 2017-18.

In January, the Coalition adjusted the Australian aid budget for 2013-14 to $5.042 billion, $107 million less than the year before, and it would be tied to rigorous benchmarks.

The infrastructure for Australian aid delivery was disrupted shortly after the Coalition came to power with the integration of the Australian Agency for International Development, AusAID, into the Department of Foreign Affairs and Trade (DFAT).

What to watch out for

Aid spending is not in line for a big spending increase. The questions are: will Australia's foreign aid spending be capped this year and what will happen to the decades-old practice of measuring aid of percentage of Gross National Income?

The Australian aid budget has already been cut by $4.5 billion from projected expenditure.

The Coalition's election promise is to grow the aid budget in line with inflation. The Foreign Minister has stated that from 2014-15, the $5 billion aid budget will grow each year in line with the Consumer Price Index.

The National Commission of Audit also recommended that the target of 0.5 per cent of Gross National Income be abandoned and replaced with increases at a rate no higher than the rate of inflation.

On the record

Foreign Minister Julie Bishop last month warned of a "far worse" budget position than previously understood and stated the Foreign Affairs budget would not be exempt.

"We're going to wear some pain, like every other department is going to wear some pain in the next budget," Ms Bishop said.

As Opposition Leader, Tony Abbott reaffirmed the Coalition's commitment to grow Australia's overseas aid contribution to 0.5 per cent of Gross National Income by 2015-16.

But the election commitment was used to refocus the Budget towards domestic spending. Two days out from the September 7 election, the now Treasurer Joe Hockey promised to cut $4.5 billion from the foreign aid program.

''We can't continue to fund a massive increase in foreign aid at the expense of investment in the Australian economy," Mr Hockey said.

He said the Government would "cut growth in foreign aid to pay for more infrastructure here in Australia."

Meanwhile the now Prime Minister Tony Abbott declared, ''We will build the roads of the 21st century rather than shovel money abroad."

The Prime Minister told Parliament in March that the target of 0.5 per cent of Gross National Income was an "aspiration".

"The first duty of this government is to bring the budget back into sustainable surplus," Mr Abbott said.

"Once the budget is back into sustainable surplus, then we will reconsider this matter of 0.5 per cent of GNI.

"In the meantime we will generally be increasing foreign aid by CPI."

What's the tip?

Aid groups are expecting the Treasurer Joe Hockey will commit to the Government's pre-election promise and move to increase foreign aid by the Consumer Price Index.

World Vision says an increase in line with CPI would take foreign aid spending to $5.18 billion or 0.32 per cent of Gross National Income.

The Australian Council for International Development says, "anything less than meeting the CPI commitment will be seen as a broken promise."

There's more to come soon after the Budget.

Foreign Minister Julie Bishop is expected to deliver a broader re-positioning statement on Australian aid which will introduce detail on the promised performance benchmarks, a more targeted approach to aid, how the Government is to work with the private sector in providing aid and the concept of "aid for trade."

The Commission of Audit recommended Australia's aid program be delivered to fewer, more strategic, nearby nations. Aid groups are expecting the Government will re-focus aid delivering in Australia's region.